Warren Buffett's holding company is no longer a market-beating vehicle.
Berkshire Hathaway CEO (BRK.A 0.96%) (BRK.B 1.06%) Warren Buffett has a well-earned reputation as one of the world's best business pickers. From 1965 to 2022, Buffett's business acumen helped Berkshire's shares deliver an astounding compound annual return of 19.8%.
If you bought a fund tracking the benchmark S&P 500 and reinvested the dividends over this period, you'd still only end up with an average compound annual return of 9.9%. That's a testament to Buffett's uncanny skill as an investor.
Nonetheless, the Oracle of Omaha himself has often said that most investors should simply buy a low-cost index fund that tracks the S&P 500 and call it a day. In Berkshire's 2013 annual letter, for instance, he specifically recommended the Vanguard 500 Index Fund (VOO 1.22%) for its low fees and nearly identical performance to its benchmark index.
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Should investors heed Buffett's advice or is Berkshire stock still a better growth vehicle than this popular indexed exchange-traded fund (ETF)? Let's dig deeper to find out.
Berkshire's investing thesis is changing with age
Berkshire is a diversified conglomerate that has investments in various sectors, such as insurance and energy, technology, and consumer goods, as well as large holdings of U.S. treasuries, U.S. and foreign equities, and a lot of cash. Its stock is designed to withstand both unforeseen economic shocks and normal economic downturns that occur in business cycles.
However, Berkshire does face some unique challenges due to its girth. The company has struggled to find attractive opportunities that can move the needle for its massive portfolio since the turn of the century. As a result, its stock has lagged behind the market at times over this period.
Buffett and analysts alike have acknowledged this reality and pointed to the company's size as a limiting factor. This is a key reason Apple has become the dominant position in Berkshire's stock portfolio in recent years, as it's one of the few growth companies that can match its scale.
Over the last 10 years, Berkshire stock hasn't been able to produce higher returns on capital than the S&P 500 because of its size problem and its lack of a dividend. Dividend payments allow investors to amplify capital gains over time through the power of compounding. Buffett's holding company has also underperformed the VOO over the past five years by nearly 15%, and most analysts expect this trend to continue for the foreseeable future.
BRK.B Total Return Level data by YCharts.
Better buy
At this stage in its history, Berkshire is more of a defensive play against market volatility, rather than a top-notch capital-appreciation vehicle. During short periods, the conglomerate's shares will likely do better than the broader markets because of its safety factor. It should also consistently generate positive net returns over the long term, which isn't an easy thing to do.
However, most investors would be smart to follow Buffett's advice and go with the VOO as a low-cost and tax-efficient way to grow capital over long periods. Still, Berkshire's stock could play an important role in a well-diversified portfolio as a hedge against economic and geopolitical risks, as well as other black-swan-type events.
George Budwell has positions in Apple and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
FAQs
Key Points. Berkshire Hathaway has consistently outperformed the S&P 500 since 1965. The Vanguard S&P 500 ETF has generated bigger gains over the past two decades when factoring in reinvested dividends. Berkshire Hathaway faces more unpredictable headwinds than the latter.
What is the return of the Motley Fool compared to the S&P 500? ›
Performance. Motley Fool prides itself on the historical performance of Stock Advisor's investment picks. In fact, the team has an average stock pick return of 628% and has quadrupled the S&P 500 over the last 21 years, according to its website.
Which is the best S&P 500 index fund? ›
Our recommendation for the best overall S&P 500 index fund is the Fidelity 500 Index Fund. With a 0.015% expense ratio, it's the cheapest on our list. And it doesn't have a minimum initial investment requirement, sales loads or trading fees.
Is it worth buying Berkshire Hathaway? ›
Berkshire Hathaway has grown larger over time, but it's hard to say the company's outlook has changed much. Berkshire Hathaway is about as solid as they come. If its long-term valuation is a baseline for fair value, investors have reason to buy shares today.
What are the cons of Berkshire Hathaway? ›
The most obvious drawback to investing in Berkshire Hathaway is the price of the Class A share. It's simply beyond the means of the average investor. Even a mutual fund or an exchange-traded fund (ETF) that owns Class A shares won't get you the equivalent of a single share of this stock without a massive investment.
How much money do I need to invest with Berkshire Hathaway? ›
Anyone can invest in Berkshire Hathaway if they have enough money to buy at least one Class B share (about $360 in late 2023). For comparison, hedge funds are open only to accredited investors, meaning those with a high income or net worth and who can meet the fund's minimum investment, which can be $1 million or more.
Has Warren Buffett outperformed the S&P 500? ›
NYSE: BRK.
B -3.42%) CEO Warren Buffett is widely considered a legend on Wall Street, and for good reason. The conglomerate's portfolio has substantially outperformed the benchmark S&P 500 since Buffett became CEO in 1965.
What are the 5 stocks recommended by Motley Fool? ›
The Motley Fool has positions in and recommends Enbridge, Home Depot, Target, Tesla, The Trade Desk, Visa, and Walmart. The Motley Fool recommends Dominion Energy.
Does Motley Fool outperform the market? ›
Motley Fool Picks and Analysis
Since 2002, the Motley Fool has steadily beat the stock market. Accordingly, the company focuses on picking stocks that have the best shot at beating the stock market. In fact, Motley Fool was one of the first newsletters to recommend stocks like: Amazon.com (up 24,225%)
Is the Vanguard 500 Index Fund a good investment? ›
Nonetheless, history has shown that buying and holding a low-cost S&P tracking vehicle is a great way to get rich slowly. The Vanguard 500 Index Fund is one of the best choices for investors who value low costs.
The easiest way to invest in the S&P 500
An S&P 500 index fund or ETF is the simplest way to invest in the index. These funds aim to replicate the returns of the S&P 500 by tracking it, offering investors exposure to S&P 500 companies without the effort involved in purchasing the individual stock of each company.
What is the best platform to invest in S&P 500? ›
5 of the best S&P 500 index funds
| Index fund | Minimum investment | Expense ratio |
|---|
| Vanguard 500 Index Fund - Admiral Shares (VFIAX) | $3,000. | 0.04%. |
| Schwab S&P 500 Index Fund (SWPPX) | No minimum. | 0.02%. |
| Fidelity Zero Large Cap Index (FNILX) | No minimum. | 0.0%. |
| Fidelity 500 Index Fund (FXAIX) | No minimum. | 0.015%. |
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Berkshire Hathaway: Has historically outperformed the S&P 500 over the long term under Warren Buffett's leadership. However, past performance doesn't guarantee future results.
What if you invested $10,000 in Berkshire Hathaway? ›
Key Points
Investors who bought shares three decades into Warren Buffett's tenure still did quite well over time. Berkshire would have turned $10,000 into well over $300,000 over the past 30 years.
What are the risks of investing in Berkshire Hathaway? ›
It owns a variety of well-known private businesses, such as GEICO, and also has minority interests in public companies, such as Apple. Risks of being a Berkshire investor include issues of regulatory challenges and being a conglomerate, as well as the performance of successors when Warren Buffett retires or dies.
What will Berkshire Hathaway be worth in 2030? ›
Long-Term Berkshire Hathaway Inc. Stock Price Predictions
| Year | Prediction | Change |
|---|
| 2027 | $ 900,369 | 39.05% |
| 2028 | $ 1.00M | 55.19% |
| 2029 | $ 1.12M | 73.22% |
| 2030 | $ 1.25M | 93.34% |
2 more rowsBerkshire Hathaway stock price stood at $428.28
According to the latest long-term forecast, Berkshire Hathaway price will hit $450 by the end of 2024 and then $500 by the middle of 2026. Berkshire Hathaway will rise to $600 within the year of 2028, $700 in 2030, $800 in 2031, $900 in 2033 and $1000 in 2036.
Why do people invest in Berkshire Hathaway? ›
1. Berkshire Hathaway stock offers instant diversification. Under Warren Buffett, Berkshire Hathaway became a massive holding company for individual stocks and ETFs. Today, it holds nearly 50 stocks and ETFs -- and its top positions include Apple, Bank of America, American Express, Coca-Cola, and Chevron.
Which are the best stocks to invest in 2024? ›
Best stocks in 2024
| S.No. | Name | CMP Rs. |
|---|
| 1. | Man Infra | 189.35 |
| 2. | BLS Internat. | 391.85 |
| 3. | Black Box | 548.00 |
| 4. | RHI Magnesita | 598.10 |
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